Busy Directors: Strategic Interaction and Monitoring Synergies

Alexander Ljungqvist () and Konrad Raff

No 23889, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We derive conditions for when having a “busy” director on the board is harmful to shareholders and when it is beneficial. Our model allows directors to condition their monitoring choices on their co-directors' choices and to experience positive or negative monitoring synergies across firms. Whether busyness benefits or harms shareholders depends on whether directors' effort choices are strategic substitutes or complements and on the sign of the cross-firm synergies. Our empirical analysis exploits plausibly exogenous shocks that make directors busier on one board and examines how this spills over to other boards. Our results suggest that monitoring efforts typically are strategic complements, except when a firm finds itself facing a crisis. Consistent with the model, we find that busy directors increase monitoring at spillover firms when synergies are positive (which we show increases expected firm value) and reduce monitoring at spillover firms when synergies are negative (which we show reduces expected firm value).

JEL-codes: G34 (search for similar items in EconPapers)
Date: 2017-09
New Economics Papers: this item is included in nep-cfn
Note: CF
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Citations: View citations in EconPapers (2)

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Working Paper: Busy Directors: Strategic Interaction and Monitoring Synergies (2017)
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